FBI Wants to Know If Robots Are Trading Illegally
Feds think high-speed traders are acting on insider information
By Kevin Spak, Newser User
Posted Apr 1, 2014 2:30 PM CDT
This file photo shows the facade of the New York Stock Exchange.   (AP Photo/Mark Lennihan, File)

(Newser) – The FBI has a running investigation into high-speed trading, the controversial practice of using computers to automatically buy and sell stock within a fraction of a second. News of the probe comes hot on the heels of Michael Lewis' headline-making interview and book about the practice, but the investigation was actually launched a year ago, the Wall Street Journal reports—and senior officials still consider it to be in its early stages. It spins out of the FBI's crackdown on insider trading.

In the past, regulators have focused on whether high-speed trading causes market instability, Bloomberg explains, but now they're wondering whether it's unfair or fraudulent. Agents suspect the trades may be based on insider info, and that firms may be hiding suspect trades amidst a flurry of fast transactions. They're also examining the practice of placing large numbers of orders to move the market, and then canceling them. "There are many people in government who are very focused on this ... and who think it breaks the law," an FBI spokesperson said. But because computers are doing all the trading, it may be hard to prove fraudulent intent.

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Showing 3 of 24 comments
Apr 2, 2014 11:34 AM CDT
Gee -- Corporations are people too! Drilling down, doesn't that also mean that computers = people, or at least parts of people. Come on FBI, what can you infer from the Supreme Court rulings? Of course, if computers only equal parts of people, which parts do you charge. Surely your (FBI's) computer folks can tell you!!
Apr 2, 2014 12:46 AM CDT
We used to have market makers. They had rules and were there to make an orderly market and rewarded for having a "book" of folks wanting to buy or sell. This new activity is like racing one to the trading floor to buy something just before one does even after I have pressed the "buy" button. That is not quite the same as the old ways. When one guy digs a "straighter" optic fiber system and then wants to charge others $10 million to be on his wire to beat you to your own trade, well, perhaps excesses have happened. That is not a trading strategy one sees in arbitrage between two prices...that is just straight theft.
Apr 1, 2014 10:16 PM CDT
It wouldn't be to hard for programmers to look at the code and see if the machines are front running the market. A group of programmers could break down the code and show you what the machines are actually doing. (Just don't use the inept programmers that are trying to create the health care web sights.) The owners of the machines could be prosecuted from there. The FBI would have to WANT to bust the traders before they would take any REAL actions, this is just lip service to shut up the every day trader that is getting beat by the high frequency trading.